The EconomistNovember 30th 2019 Business 59R
einventingcapitalismisallthe
rage.TheBritishAcademy,a scholarly
body,issueda provocativereportin 2018
arguingforthereplacementofprofit-
focusedshareholdercapitalismwitha
systeminwhichcorporationsembrace
socialpurpose.A follow-upmanifesto
publishedonNovember27thtriesto
explainhowtodothis.Butfixingcapi-
talismiseasiersaidthandone.
Thereportlaysouteightprinciplesto
guideimplementationofcorporate
purpose.Theserangefromchanging
lawsandregulationstoimprovingmet-
ricsandgovernance.Somearesensible.
Establishingcommonstandardsfor
measuringsocialimpactwouldbea vast
improvementoverthecurrenthotch-
potchofcompeting(andoftenmis-
leading)measuresofhowfirmsfareon
environmental,socialandgovernance
matters.Ideasforreformingcorporate
governance,includingimprovingboard
accountability,areuseful.
Someideasareproblematicordown-rightbarmy.Thereportmakestheex-
traordinaryclaimthat“ownershipdoes
notrelatetotheassetsofa firmbuttoits
purposes”.Theexpertsinsistthatevery
companymustbylawhavea purpose
“thatisnotsolelyaboutprofit”.Sowould
strategiesthatmaximisedprofitsbe-
comeillegal,unlesstheyalsosolved
povertyorclimatechange?Andwhichof
thosegoalswouldthepurposepolice
deemmoreworthwhile?Thereisonly
passingmentionofthesortsoftrade-offs
thatbossesmustmakebetweenthe
competingclaimsofrivalstakeholders.
Thereportisheavyon“shoulddo”
recommendationsandlightonincen-
tivesneededtoachievethosegoals,
notesLuigiZingalesoftheUniversityof
Chicago.Hearguesthatforcingfirmsto
havea socialpurposeisanunjustifiable
infringementoffreedom.Makingbosses
comeupwithcuddlycorporate-purpose
statementsislikelytoproducea swarm
ofplatitudes.
Thereportnotesthatthecorporate
purposeofNovoNordisk,a Danishdrugs
firm,isto“drivechangetodefeatdiabe-
tesandotherseriouschronicdiseases”.
TheAcademyapplaudsthefirm’suseof
theFuture-FitBusinessBenchmark,a
toolforassessinggovernance.Sadly,
thesevirtuesdidnotpreventit from
chargingoutrageouspricesforitsinsulin
inAmerica,leadingtolawsuitsand
congressionalinquiries.Thefirmdenies
wrongdoing.InSeptemberit responded
topublicoutragebyofferingcheaper
insulintoAmericandiabetics—butonly
afterEliLillyandSanofi,rivaldrugs
giants,haddonesofirst.
Theacademy’sclear-headedfirst
reportaskedimportantquestionsabout
theroleofbusinessinsociety.Itsmud-
dledfollow-up(whichMrZingalesde-
scribesas“somethinginbetweenpolicy
prescriptionanda self-helpbook”)
seemsdestinedtoendupasa doorstop.Onpurpose
CompaniesandsocietyNEWYORK
A newreporturgesbossestoembrace“purposeful”businessCapitalismhasitscriticsT
he boss of Novartis is on a buying
spree. Vas Narasimhan has been shop-
ping for new medicines that will reinvent
his drug company. His aim is to turn a
stodgy European conglomerate into a cut-
ting-edge pharmaceuticals firm by declut-
tering it of unwanted assets and placing big
bets on advanced medicines. These are
more precise in the way they work and are
likely to play an increasing role in health
care in the future. By shuffling the deck, Mr
Narasimhan says he is focusing on “trans-
formative innovation”. All bosses of
pharma firms like to boast about that kind
of thing. Nonetheless, there is substance to
the changes afoot at Novartis.
The latest acquisition, announced on
November 24th, of the Medicines Com-
pany for $9.7bn, brings with it a promising
cardiac drug that targets bad cholesterol,
and which can be given in only two annual
shots. In less than two years at the helm, Mr
Narasimhan has also snapped up an eye
drug from Takeda for up to $5.3bn, Endo-
cyte, a small biopharma firm, for $2.1bn,
and AveXis, a gene-therapy firm, for
$8.7bn. He has boasted about having a
pipeline of 25 blockbuster drugs. If they all
come good it would be remarkable.
Out has gone the firm’s stake in a joint
consumer health-care venture with gsk, a
British pharma firm, for $13bn. Alcon, its
eye-care division, has been spun off into a
separately traded company.
Pharma firms have been slow to adopt
the digital transformations that have
brought innovation (and disruption) to fi-
nance, shopping, banking and airlines. The
new Novartis is more intent than rival drug
firms on using big data and digital technol-
ogies to improve productivity and offer
new services. If it can harness big data, the
firm could become more adept at drug de-
velopment. This would, for example, allow
Novartis to hone the way it runs clinical
trials. It could also allow the firm to identi-
fy subgroups of patients within sufferers
from diseases such as multiple sclerosis,
who will respond better to particular
drugs, significantly lowering the cost of
treatment. The firm is also opening digital
health labs, including one in San Francis-
co, to tap into start-ups in the health-tech-
nology field.
Even as it tries to reshape itself for the
next era of medicine, Novartis still faces
some criticisms familiar in the drug indus-
try. One is high prices. Its gene-therapy
drug, Zolgensma, is expected to cure spinal
muscular atrophy, but costs $2.1m per
treatment in America. Novartis has also
been sharply admonished by regulators
and lawmakers for being slow to reveal that
falsified data were used to gain approval for
the drug. The firm says it was standard pro-
cedure to investigate before informing au-
thorities. The dodgy data seem to have no
bearing on the safety or efficacy of the drug.
When it comes to the new heart drug Mr
Narasimhan has bought, he will have lesspricing power than with Zolgensma. Al-
though the medicine may be better than its
rivals, the market is crowded with similar
drugs that are not selling well. But while its
transformation is under way at least No-
vartis, like its rivals, can rely on a booming
Chinese market, where the government is
now paying reasonable prices for foreign
drugs. Novartis talks of doubling sales in
Asia over the next five years. Investors who
are worried about the high price paid for
the Medicines Company can take heart. 7Transforming a pharma conglomerate
Novartis